Carbon price hits profits

Australia’s largest goldminer,
Newcrest Mining
, said the proposed carbon tax would slice up to 3 per cent a year from its profits, adding to industry fears about the impact of the new impost.

Newcrest’s comments follow cop­per and gold miner
OZ ­Min­erals
saying the tax would cost it up to $10 million a year, even though it did not expect to face any direct charges for emissions.

Pilbara iron ore producer
Fortescue Metals Group
estimates the tax will increase operating costs, which are already under pressure due to the high Australian dollar and rising input costs, by about 1 per cent.

And
Whitehaven Coal
, which is not expected to be one of the worst affected coalminers, believes the associated reduction in the diesel fuel rebate will cost it an extra $3 million a year.

The carbon package will mainly hit hard-rock miners through the 6¢-a-litre cut to the diesel rebate, while many say they will also pay increased power and supply costs.

The updates come as the Minerals Council of Australia and the Australian Chamber of Commerce and Industry launch an advertising campaign against the carbon tax, saying Australia should wait until more countries put a price on carbon.

In providing the forecast yesterday, Newcrest chief executive
Greg Robinson
also warned the tax would discourage long-term investment in the Australian gold sector, which generated $13.8 billion in export revenue last year.

“I would make the point that gold is a trade-exposed industry, but we will not receive assistance from the government," he said.

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Newcrest expects to be taxed directly because its Telfer mine in Western Australia’s north operates using a gas-fired power station with back-up diesel generation.

However, it also anticipates being affected indirectly by an increase in electricity charges on the eastern seaboard, the reduction in the diesel fuel rebate and increased supplier costs.

Newcrest estimated that from the date of its proposed introduction mid-next year until the advent of an emissions trading scheme in 2015, the carbon tax would wipe between 1 and 3 per cent off its bottom line.

Analysts expect the goldminer to report a profit of around $1 billion for financial year 2011 next month. Assuming it stays at that level, the impact from the tax could equate to as much $30 million a year.

Goldmining is not one of the industries deemed eligible for the federal government’s emissions-intensive, trade-exposed assistance program, meaning that goldminers are unlikely to receive any permits to offset carbon tax charges during the three-year transition phase.

Mr Robinson said companies in the sector had no means of passing on the additional costs to customers, as the price of gold is set according to the global market.

One consolation for Newcrest, however, is that the bulk of its growth projects are located offshore, in Papua New Guinea, Fiji and Indonesia, where the respective governments are yet to propose a tax on carbon emissions.

The company is also exploring opportunities to mitigate the cost impact of the carbon tax. It sees as a possibility accessing credits for using geothermal power at its Lihir Island operation in PNG once the emissions trading scheme kicks in.

OZ, which operates a single mine, Prominent Hill in outback South Australia, does not expect to incur a direct carbon tax impost, nor does it qualify as one of the country’s top 500 emitters.

But because of the government’s move to reduce the diesel fuel rebate by 6¢ a litre as part of its carbon package, and expected higher electricity charges, the company envisages its profits suffering by $7 million to $10 million a year.

“OZ Minerals is similar to everybody," chief executive
Terry Burgess
said. “We use electricity and we use fuel, but for us in the mining industry, it has been deemed that the diesel fuel rebate will be reduced by 6¢ a litre, while other people who use ­diesel fuel will be better off in the short term."

Recent research produced by Citigroup shows that fuel and energy costs account for 26 per cent of total cash costs at open-pit copper mines such as Prominent Hill, more than most other types of mines.

Goldminers are in similar position.
Kingsgate Consolidated
chief executive
Gavin Thomas
told the Sydney Mining Club earlier this month he was worried about how the loss of the diesel rebate would effect the company’s Challenger goldmine in SA.

“We are not a big business, but we will be slammed," he said. “It will hurt us, no doubt about it. It is something that is real for us at Challenger. That will impact this mine."

Whitehaven Coal uses 50 million litres of diesel fuel a year at its coalmines in NSW so the 6¢ reduction in the rebate will automatically cost the company $3 million annually.